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Group Size and Social Ties in Microfinance Institutions

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Author Info

  • Klaus Abbink
  • Bernd Irlenbusch
  • Elke Renner

Abstract

Microfinance programs provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. We experimentally investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects and observe robust high repayment rates. Group lending outperforms individual lending. Self-selected groups show high but less stable contributions. (JEL C90, H41, I38, O16, Z13) Copyright 2006, Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 44 (2006)
Issue (Month): 4 (October)
Pages: 614-628

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Handle: RePEc:oup:ecinqu:v:44:y:2006:i:4:p:614-628

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  1. Microfoundations of Microfinance
    by Peter Klein in Organizations and Markets on 2006-11-21 05:46:39
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